Are second charge borrowers inflating their incomes?

Last post: Feb 9, 2018

The Financial Conduct Authority is investigating some second charge lenders who may have offered secured loans to borrowers on the basis of falsely inflated incomes.

It's
not easy to arrange a mortgage – especially if you're
self-employed. Once upon a time, would-be self-employed house-buyers
were able to self report their income, as long as this was then signed
off by a certificate from an accountant. However, the industry soon
saw that this was not a dependable method
of certifying income. The practice was tossed out and more reliable,
hard-line proofs of income are now required.

Not
so in the second charge mortgage industry. Today self-employed
borrowers seeking a secured loan do not require more concrete proofs
and can still make use of self-reporting and an accountant's
certificate to confirm what they earn.

Unfortunately,
just as the system was abused for original mortgages, a minority of
second charge customers are believed to have been abusing this
laxness to artificially inflate how much they earn in order to
receive a larger or more affordable secured loan.

The FCA
(Financial Conduct Authority) are currently investigating several
lenders who may have been privy to this problem.

The
problem doesn't lie solely at the feet of borrowers who may be
inflating their incomes. The lenders currently under investigation
may not have been reinforcing the strong affordability controls
required to ensure they are lending responsibly.

This
is especially important when
it involves a financial product which is often used by borrowers in a
somewhat sticky financial position, often with a number of debts to
consolidate. Without responsible lending, these borrowers could find
themselves working with a product which is inappropriate for them,
worsening their financial position over the longer term.

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